1. The Board of Directors
in Corporate Governance
and Policy Making
CLARO G. GANAC

2. GRADUATE SCHOOL OF MANAGEMENT
Policy Dynamics
The Board of Directors
in Corporate Governance and
Policy Making

3. Presentation Objectives
 Discuss the legal frameworks and the state of
current compliance and practice in corporate
governance and policy making by the Governing
Body or Board of Directors.
 Explore and delineate CG implementation of a
small sample of publicly listed corporations.
 Examine differences in CG performance and
compliance using empirical indicators between
large and small-cap corporations

4. Conceptual Framework
 The student used the Donabedian Model as
the conceptual framework for examining the
state of Corporate Governance and evaluating
practice of policy making.
 It was developed by Avedis Donabedian, a health
researcher. It was originally used to assess
healthcare quality and service delivery.
 Essentially a model that divides metrics into:
“structure,” “process,” and “outcomes."

5. Conceptual Framework
Structure Process Outcomes
Corporate Governance Performance Evaluation
Framework – Hierarchy of Effects

6. Conceptual Framework
 Structure describes the legally mandated
framework and organizational structures that are
in place to facilitate high-level policy making.
 Process denotes the relationships and flows of
information and transactions between the Board
of Directors, shareholders, Management and
stakeholders in the conduct of Corporate
Governance.
 Outcomes refers to the intended effects of
Corporate Governance on key measures of
performance.

7. Conceptual Framework
Corporate Governance
Corporate Governance (CG) refers to the overall
framework of rules, systems and processes
relating to the enforcement of decision-making
and oversight powers and performance of the
Board of Directors and Management in the
conduct of their fiduciary responsibility to the
owners of the firm as provided for by law
(Corporation Code of the Philippines; Securities &
Exchange Commission, Code of Corporate
Governance 2002).

8. Research Methodology
 Literature review of corporate laws and rules
and regulations
 Small sample survey of publicly listed
corporations to establish a profile of corporate
governance practices and processes.
 In-depth interview of EEI Corporation to better
understand the current level and scope of CG
policy making at a private corporation.
 Review of corporate disclosures, including
shareholder annual reports, CG Scorecard
reports and websites.

9. Board of Directors &
Governance

10. Philippine Stock Exchange

11. Board of Directors
 The Board is the highest policy-making body in
a corporation.
 It exercises and discharges its responsibility of
high-level policy formulation, monitoring and
evaluation, and control using Corporate
Governance system
 The purview of policy-making, however, does
not cover all company policies that are in force
across the organization.

12. Board of Directors & Governance
Policy-Making in the Corporation
Board of
Directors
CEO/
Senior Mgt
Mid to
Lower
Managers
GOVERNANCE
POLICY
GUIDELINES
OPERATIONAL
POLICIES

13. Board of Directors and Policy-Making
 In practice, the amount of power exercised by
the board varies with the type of company.
 In small private companies, the directors,
shareholders and management are normally
the same people. There is no real division of
power.
 In public companies, the board tends to
exercise a supervisory role, and individual
responsibility and management are delegated
downward to individual professional executives

14. BOD Composition
 A Board of Directors (BOD) is composed
of members who are appointed or
elected by the general shareholder
membership.
 In non-profit, non-stock corporations, it
may be named as board of governors,
board of regents, or board of trustees.
 Theoretically, the control of a company is
divided between the board of directors,
and the shareholders as a single body.

15. Board of Directors Composition
 The BOD members are elected by shareholders
of record during the Annual Meeting of the
corporation. Term of office is one (1) year.
 All elected directors must own at least one (1)
share of stock of the corporation.
 The number of Directors is determined in the
company’s Articles of Incorporation and By-
Laws, in accordance with the Philippine
Corporation Code.
 The minimum number of BOD members is five
(5) and the maximum is 15 members.

16. Board of Directors Powers
 In line with the Corporation Code of the
Philippines (B.P. 68), the BOD is vested with the
final authority to discharge and approve all the
corporate powers of a corporation, including
the administration of all businesses and
activities and all property owned by it.
 The general control and management of the
business of the corporation with authority to
transact businesses rests with the Board,
subject to restrictions in the corporate charter
or by-laws

17. BOD Responsibilities & Functions
General Responsibility
 “The Board’s responsibility to foster the long-term
success of the corporation, and to sustain
its competitiveness and profitability in a
manner consistent with its corporate objectives
and the best interests of its stockholders.
 … formulate the corporation’s vision, mission,
strategic objectives, policies and procedures
that shall guide its activities, including the
means to effectively monitor Management’s
performance.”

18. BOD Responsibilities & Functions
Duties and Functions
• Ensure a high standard of best practice
for the corporation
• Conduct itself with honesty and integrity
• Implement a process for the selection of
directors
• Appoint competent, professional, honest
and highly motivated management
officers.

19. BOD Responsibilities & Functions
Duties and Functions
• Adopt an effective succession planning
program for Management.
• Provide sound strategic policies and
guidelines to the corporation on major
capital expenditures (power of the
purse).
• Establish programs that can sustain its
long-term viability and strength.

20. BOD Responsibilities & Functions
Duties and Functions
• Evaluate and monitor the implementation
of policies and strategies, including the
business plans, operating budgets and
Management’s overall performance
(Oversight of strategy formulation and
management).
• Ensure faithful compliance with all
applicable laws, regulations and best
business practices.

21. BOD Responsibilities & Functions
Duties and Functions
• Establish and maintain an investor
relations program; keep stockholders
informed of important developments.
• Formulate a clear policy of accurate,
timely and effective communication with
sectors in the community it operates.

22. BOD Responsibilities & Functions
Duties and Functions
• Adopt a system of check and balance
within the Board.
• Ensure the integrity of the decision-making
and reporting processes at all
times.
• Formulate and implement policies on
related party transactions.
• Install the corporation’s internal control
system.

23. BOD Responsibilities & Functions
 Identify key risk areas and performance
indicators and monitor these factors with
due diligence to prepare for possible
threats to its operational and financial
viability.
 Constitute an Audit Committee and other
committees necessary to assist the Board.
 Establish dispute resolution system.
 Appoint a Compliance Officer.

24. Corporate Governance
Practice in the
Philippines

25. PSE Trading Floor

26. Policy/Governance Outcomes
Fiduciary
responsibility
Strategic
Management
Ethical/Sound
Operations POLICY
Review & Control

27. Governance Outcomes
Fiduciary Agenda
 Protect the interests of all shareholders,
particularly minority share owners.
Includes:
• ensuring the long-term viability and
sustainability of the corporation;
• safeguarding company assets and resources;
• Ensuring welfare of company employees and
key stakeholders

28. Governance Outcomes
Fiduciary Agenda
• Ensure that the ownership rights of
shareholders are properly accorded them and
exercised, inclusive of the right to vote and be
elected as board and the exercise of pre-emptive
rights over key decisions about the
company as expressed in the Corporation Code
and the;

29. Governance Outcomes
Ethical management and operations
of the firm.
 Accountability, integrity, transparency and
fairness are enshrined as core principles in all
dealings by the company, Board, Management,
officers and employees with all stakeholders.
 Formulation and dissemination and
performance due diligence of Code of Business
Conduct and Ethics

30. Governance Outcomes
Strategic direction and management.
 Modern management practice ascribes powers
over the over-all direction and supervision of the
organization by the corporate board.
 The BOD is responsible for viable and sustainable
operations .
 It is responsible for the formulation and review of
the corporate Vision-Mission, strategic and
annual business plans.

31. Governance Outcomes
Monitoring and control function.
 The BOD possesses oversight powers over the
company’s overall and financial performance.
 Financial statements are in accord with the
Philippine Financial Reporting System and the
International Auditing Standards and are
reported on an annual and quarterly basis.
 Internal and external auditing processes and
structures are set by the BOD.
 Adoption of control mechanisms including
check-and-balance.

32. Governance Structure/Processes
Bangko Sentral ng Pilipinas

33. Governance Structure/Processes
Legal/Regulatory Framework
 Corporation Code of the Philippines
 Securities Regulation Code
 Revised Code of Corporate Governance
SEC Memorandum Circular No. 6 Series of
2009
 The company’s Articles of Incorporation
and By-Laws

34. Governance Structures & Processes
 Governance structures and regulatory
frameworks set minimum standards of
policy compliance
 The BOD is equipped with sufficient
structure and process powers in the
corporate hierarchy, influence to impact
policy making and strategy formulation
and execution.

35. Policy Formulation Structure

36. Governance Structure/Processes
Policy Agenda Structure Process
STRATEGY
FORMULATION &
MANAGEMENT
Vision-mission setting
Strategic planning
Annual planning
Approval of plans
Approval of budgets
Ratification of Management’s
actions
FIDUCIARY
AGENDA
Board Meetings
Stockholders Meeting
Board Committees
Corporate governance
scorecard
Election of directors
Independent directors
Disclosure system
Investor relations and
information
ETHICS AND
SOUND
OPERATION
Code of Business Conduct &
Ethics
Compliance officer
Related party transactions
Seminars/orientation
Ethics monitoring
Disclosures and reporting
Corp. Social Responsibility
REVIEW AND
CONTROL
Performance monitoring
Internal audit
Risk management
Annual report
Financial reports
Audits/surveillance

37. Governance Structures & Processes
Regulatory information and disclosure
systems:
 SEC Form 17A, 17Q, related disclosures;
Information or Proxy Statement
 Policies on disclosures of related party
transactions; conflict of interest,
 Purchase and trading by directors and
Management of shares of stock
 Conflict of interest.
 Investor relations and communications

38. Strategy Formulation Structure
The Board extends its oversight influence on
Strategy Formulation through:
 Hiring, selection, evaluation, control and
compensation of Management, including the
Chief Executive Officer (CEO).
The BOD delegates to Management the task
of formulating and executing strategy and
overseeing business operations.

39. Strategy Formulation Structure
Supervision of the direction of the
corporation.
 The BOD is responsible for the strategic
function of approving the vision, mission and
goals of the organization, usually determined
by the CEO and Senior Management.
 Strategic plans and guidelines then goes
down the hierarchical chain of command.
 At the lowest-level, the policies can take the
form of specific rules of conduct.

40. Strategy Formulation Structure
Agenda setting and formal relationship
structure with the CEO and
Management.
 Monthly regular Board meetings
 Pre-planned agenda and documentation of
proceedings
 Deliberation and approvals of the strategic
and annual plan and budgets, and capital
expenditure budgets;

41. Strategy Formulation Structure
Ratification/confirmatory powers.
 Ratification of all acts of Management
during Stockholders Meeting
 Quarterly and annual review of corporate
and financial performance through annual
and interim financial statements of the
company

42. CG Performance of Selected
Philippine Corporations

43. Corporate Governance: Actual Practice
 The regulatory structure has set minimum
governance compliance standards and
performance.
 The author undertook a review of the
website, shareholders annual report, SEC
disclosures, CG and internal communications
materials of eight (8) listed corporations.
 The list includes the giant PLDT which had a
market capitalization of P581 billion as of end
2012 and a free float of 54%, which shows a
large minority shareholder base of over
50,000 persons.

44. Corporate Governance: Actual Practice
COMPLIANCE
(Regulatory
Framework)
CG Best
Practice
Exceeds
minimum
standards
• Transparent
director actions
• Information
symmetry
• Advocacy of ethics
and CG principles
to employees,
stakeholders and
general public
PLDT,
Ayala
Group,
< BDO

45. Corporate Governance: Actual Practice
GOVERNANCE STRUCTURE COMPLIANCE:
Publicly listed of good standing (inclusive of
surveyed companies) are compliant :
 Filing and submission of Corporate Governance
Manual and Code of Business Conduct and Ethics
 Filing and submission of SEC disclosure reports:
 SEC Form 17A (Annual Report), SEC Form 17Q
(Quarterly Interim Financial Statement),
 Information or Proxy Statement,
 General Information Statement
 Corporate Governance Scorecard

46. Corporate Governance: Actual Practice
GOVERNANCE STRUCTURE COMPLIANCE:
 Formulation and submission of Code of
Business Conduct and Ethics
 Filing and submission of annual Corporate
Governance Scorecard
 Organization of Audit, Nomination and
Remuneration committees in the Board
 Agenda setting and monthly Board Meetings
 Appointment of external auditor and
installation of Internal Audit System

47. Corporate Governance: Actual Practice
WEAKNESSES:
 Lip service – selective or non-practice of
governance policies and processes
 Insufficient dissemination of business
conduct/ethics and governance principles to
employees, shareholders and investors
 “Paper” board meetings and poor strategic
management
 Independent directors can still be swayed by
the major owners and/or management
 Lack of consultations in high-level decisions

48. Corporate Governance: Actual Practice
COMPANY
MARKET
CAP.
PRICE
EARNINGS
RATIO
BOARD COMMITTEE
&MEETINGS
RISK MGT/
INTERNAL
AUDIT
IND.DIREC
TORS
DISCLOSURES &
COMMUNICATIONS
PLDT P 581.19 B P 16.50
Five Board Committees;
Compliant attendance
Enterprise Wide
4 All; with investor relations
Ayala Corp P 347.67 B P 33.09
Five Board Committees;
Compliant attendance
Enterprise Wide
3 All; with investor relations
BDO P 300.79 B P 18.69
Five Board Committees;
Compliant attendance s
Enterprise Wide
3 All; with investor relations
Jollibee
Foods Corp P 166.18 B P 45.28
Three Board
Committees; Compliant
attendance
Limited
2
(Minimum)
Website and disclosures
with investor relations
EEI Corp P 11.19 B P 11.46
Three Board
Committees; Compliant
attendance
Enterprise Wide
2 All
Chemrez P 4.35 B P 16.90
Three Board
Committees; Compliant
attendance
Limited
2 Disclosures only
Republic
Glass P 1.74 B P 7.73
Three Board
Committees; Compliant
attendance
Limited
2 Disclosures only
Macro Asia
Cor. P 2.66 B (P 14.07)
Three Board
Committees; Compliant
attendance
Limited
2 Website and disclosures

49. Corporate Governance: Actual Practice
BEST PRACTICE
 PLDT and to lesser extent BDO and Ayala stands
out in CG practice by exceeding performance on
most standards and processes.
 PLDT’s BOD and Management has been engaging
in an advocacy communication program to
expand awareness and foster an employee
culture that promotes for corporate ethics and
corporate governance principles.
 Mobilizing the BOD in other key areas of
management – Risk Management, Management
selection, etc.

50. PLDT CG Advocacy